After a boom year for the tech industry, investors poured money into grocery shipping companies, online brokers and Elon Musk’s SpaceX in early 2021, creating a record quarter for US venture finance.
Venture-backed firms raised $ 64 billion in the first three months of the year. This came out of an analysis by Ernst & Young this week that used data from Crunchbase. That’s 43% of the $ 1.48 billion raised in all of 2020, a record year.
“We are technically still in a pandemic and trying to get out of it,” said Jeff Grabow, US venture capitalist at Ernst & Young, in an interview. “A year ago everyone thought we were falling into the abyss. To have a record quarter like this is pretty amazing.”
Grabow said while we are clearly on track to see a fourth straight year of $ 100 billion in venture funding, “the question is – will there be a $ 200 billion year?”
The late-stage market continued at a rapid pace after a historic second half for IPOs that included offerings from Snowflake, DoorDash, and Airbnb. The first two quarters of 2020 were calm as companies changed their plans due to Covid-19, but the market recovered dramatically and continued.
Grabow said there were 183 venture deals worth at least $ 100 million in the first quarter, more than half of last year’s total. The biggest deal was the $ 2 billion financing round of autonomous automotive company Cruise in January, led by Microsoft under a strategic agreement with General Motors, the majority owner of Cruise.
Gopuff digital convenience store raised $ 1.15 billion in March for the second-largest deal of the quarter. Cloud data analytics software provider Databricks raised $ 1 billion during the period, as did its investment in the Robinhood app, which needed liquidity after wild trading with GameStop plunged the company into a financial crisis.
The largest sub-billion dollar round was for private space company SpaceX, which raised $ 850 million in February, valued at roughly $ 74 billion. Top deals also included the $ 600 million donation from payment software company Stripe, valued at $ 95 billion.
In addition to the increasing number of mega-rounds, the early-stage market is also brand new. Grabow said there were a record number of Series A and B deals in the first quarter.
Smaller funds are popping up from week to week, and the AngelList website also allows investors to bring together syndicates of people who want to raise money for startups without networking locally. With so much capital in the system and the advent of virtual dealmaking through Zoom, venture rounds are coming together much faster than in the past.
“There’s been a lot of buoyancy and excitement in the market because people believe we got through Covid,” Grabow said. “The digitization and technological enablement of the industry has been carried over to steroids.”
The record level of venture investing coincides with the phenomenon of special purpose vehicles (SPACs), or blank check companies, which private companies acquire and go public. SPACs are a possible alternative to late-stage rounds.
According to SPACInsider, around 306 SPACs collected 98.9 billion US dollars as early as 2021. That surpasses the $ 83.4 billion raised throughout 2020, which was by far a record year. Grabow admits that between traditional funding and SPACs venturing into a company, there are sure to be investors taking undue risk.
“It’s called Venture for a reason,” Grabow said. “These are high return situations that involve high risk.”
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